ASD's demise: Did politics undo computer firm's contract?

11/30/01
By EDDIE CURRAN Staff Reporter

In October 1999, Lt. Col. C.E. Andrews of the Alabama Department of Public Safety wrote Finance Director Henry Mabry to express his concern that the agency "had been contacted by Charlie Stephenson about replacing ASD personnel."

Allen Spradling, who managed the Montgomery office of ASD, or Advanced Systems Design Inc., would soon hear about the order that marked the beginning of the end for the company's once-thriving business providing computer workers to Alabama state agencies.

According to Spradling, a DPS official came to him with news that was bad for Spradling and, records show, caused concern at the department as well.

"'I got this guy sitting in my office and he's telling me that the finance director is wanting him to do the business that y'all are doing for me,'" Spradling recalls the official saying to him. "'He says I'm supposed to give him this business. You need to find out what's going on. Help me out.'"

But DPS computer officers, as state records show, would have no choice.

Memos and correspondence by Public Safety officials show that in 1999 and 2000, the offices of Gov. Don Siegelman and Mabry ordered DPS to cease using ASD for computer services and transfer the work to Stephenson, a technology salesman whose large-scale sales to the state went back a decade.

At the time, Stephenson had no employees and no experience running what is essentially a high-end people-providers company. And he was four months away from incorporating the company, Digital One Services, that would be given the DPS contract, and more besides.

Today, the Mobile Register continues a series of stories about the selection of firms that supply computer specialists to state agencies. The series focuses on the role that politics may have played in the ouster of Tallahassee, Fla.-based ASD as a leading provider of high-tech workers, and on the state's choice of its replacements.

In early September, the Register asked Public Safety to provide access to all its records pertaining to ASD and Digital One, including correspondence, memos and payment records. The following day, a spokeswoman stated that DPS director Col. James Alexander had ordered that the records not be shown to the newspaper.

The Register contended that the agency's records regarding the two companies had been produced in a lawsuit involving ASD, Stephenson and some former ASD employees. Subsequently, DPS allowed the newspaper to review the records it had requested.

Among other things, those records show that after Public Safety was ordered to use Stephenson, the agency asked Mabry if it could seek bids or proposals from other firms, and was denied.

The records also show that, despite fierce opposition from DPS's top lawyer and its accounting division, Digital One was allowed to bill the state time and a half for overtime worked by its employees - in some cases, up to $120 an hour. Stephenson's firm is apparently the only such company allowed by the state to do this.

Almost all of the correspondence included in those records was created by DPS officials, and some of it was addressed to the Finance Department, and Mabry in particular. The records show almost no correspondence from Finance to DPS - and nothing from the Siegelman administration, such as a written directive to fire ASD and replace it with Stephenson's as-yet-formed company.

Public Safety's subsequent correspondence to Mabry's office, though, makes it clear that such directives were given. None of the records reviewed by the newspaper explain why Mabry and the governor's office wanted ASD out and Stephenson in.

The Siegelman administration declined to comment for this report (see note at end of this story). And when the Register asked to interview agency officials who fought to keep ASD and expressed dismay at the order to deal with Stephenson, the governor's office had instructed DPS that its employees were not to be interviewed.

"We won't be able to accommodate you," said DPS spokeswoman Dorris Teague.

Stephenson, 52, declined comment as well.

"You'll have to call the state. They're my customers," he said.

By one commonly used benchmark for political favoritism - campaign contributions - Digital One stands apart from the other firms with sizable state computer services contracts. In 1999, five of those firms, ASD included, gave $10,000 or more to Siegelman's campaign for a state lottery.

The Register couldn't locate any contributions by Stephenson or Digital One.

An order from above

On Sept. 21, 1999, Michael Sullivan, at the time acting director of Public Safety, wrote Mabry to express concern about an apparent order from one of his assistants to cancel ASD's contract.

If DPS had to replace ASD with a new contractor, the agency would "be faced with a critical learning curve problem. The problem is complicated by the short time frame, 7 days, that we have to work within," Sullivan wrote.

The timing was crucial, because the new fiscal year would begin Oct. 1. By law, the state can't pay firms that don't have contracts, and ASD's was set to conclude on the final day of September.

Both company and agency were sweating it. As one DPS memo stated, without the ASD contract employees, "We would almost immediately cease to function. The end result would be that licensed drivers would not be issued a driver's license."

With about a week remaining in the fiscal year, the contract remained in Mabry's office, unapproved by him, and unsigned by Siegelman, said ASD vice president John Adams in a recent interview.

Sullivan sought to change Mabry's mind about ASD. In a letter, he told the finance director that in 1997, Public Safety had discovered severe flaws in a new driver's license system. In December of that year, a "total system software and backup failure" resulted in the loss of about 50,000 records of Alabama drivers, Sullivan wrote.

"This failure also forced our 67 counties to have to work in an offline capacity for several days, creating a flood of bad publicity," stated the DPS director.

ASD, which at the time had just come aboard, worked extensively to get the system working, and devised a backup system to prevent future failures. When the system crashed again months later, DPS didn't lose a single driving record.

"Our ability to accomplish this was a result of the ASD employees and their intimate knowledge of the entire system," Sullivan wrote Mabry.

DPS records don't reflect a response from Mabry. A memo dated three days later, however, shows that DPS staff attorney Jack Curtis had been asked to review ASD's contract. Curtis' memo to his DPS superiors indicated that he could find no reason to terminate the contract.

With ASD's 1998-1999 contract due to expire in days, and its replacement sitting on Mabry's desk, the company called on Amy Herring, a former Siegelman aide turned lobbyist, and the first lobbyist ever hired by ASD in its seven years doing business in Alabama.

Herring fulfilled her mission, Adams said in his interview with the Register.

"She somehow moved the contract from his (Mabry's) office to the governor's office and got it moved on Sept. 29," the ASD vice president said.

Siegelman, after meeting with Herring, signed the contract, according to a written record of Herring's activities that she supplied to ASD. That kept ASD in business at DPS, at least for the time being, Adams said.

"Mabry wanted us out then," Adams said. "He wanted us out for the whole 1999-2000 contract year, and instead, it was a year later that we were actually out.

"But six months later, they started bringing in Digital One. If we lost somebody through attrition, we didn't get to replace them. So there were signs that something was happening."

No competition allowed

Though ASD had its contract, the pressure from Mabry's office continued unabated, DPS records show. Those records also show that alarm bells started ringing at Public Safety as news of the administration's wish to remove ASD flowed down to officials responsible for making sure the driver's license system functioned smoothly.

In the October 1999 memo in which Lt. Col. Andrews related to Mabry his concerns, he sought to persuade the finance director to allow the agency to consider other options.

Andrews wrote that it was his understanding that ASD's contract for the 1999-2000 fiscal year had been approved. Neither Sullivan, the DPS head, nor anyone else had told him and other information service officers that DPS was being ordered to terminate ASD's contract and start using another vendor.

Andrews wrote Mabry that if Public Safety simply had to remove ASD, then it should be allowed to consider several alternatives to contracting with Stephenson, such as hiring qualified computer specialists and putting them on the state payroll.

If those suggestions weren't accepted, Andrews urged Mabry to at least consider one other possibility: "I believe it to be to the department's advantage to have the ability to negotiate with other professional services providers in addition to Mr. Stephenson," Andrews wrote. "It has been my experience that the best services can be obtained for the Department in a competitive environment."

DPS records don't reflect a response from Mabry, but follow-up memos make it clear that Andrews' request was denied.

State incorporation records show that Stephenson formed Digital One Services on Jan. 31, 2000. The following month, DPS awarded the firm a $570,000 contract, and the Department of Human Resources - which would later be ordered to get rid of ASD as well - awarded Stephenson's company a $600,000 contract.

At the time, the company didn't have sufficient numbers of employees to work the hours necessary to bill that much money, billing records suggest.

When DPS submitted that first Digital One contract to the Legislature's Contract Review Committee, the document stated on the cover sheet that Digital One had won the contract through "Competitive Solicitation."

In May, during a sworn deposition given during a lawsuit unrelated to the Public Safety contract, Stephenson testified that his company bid against ASD and "we were the low bid."

While the Register made broad requests seeking all records pertaining to ASD and Digital One, the newspaper also made one specific request to both the Finance Department and the governor's office. That request sought the proposal or bid, or any letter or memo serving as such, that Stephenson might have provided the state prior to his being chosen to replace ASD.

If no such record existed, the newspaper asked the administration to state as much. The administration provided neither a record nor a response to the newspaper's request.

A June 2000 memo by DPS's Howell to the Finance Department states that DPS had eliminated its contract with ASD and replaced it with Digital One "at the request of the governor's office" and the Finance Department. The memo states that Digital One's rates were between $5 and $10 an hour lower than ASD's.

Adams, the ASD vice president, said his company hadn't raised its rates in four years, and that during that time, it had been giving annual raises to its employees. As such, it was difficult to lower its rates to the state, he said.

While Digital One initially provided lower rates, seven months later, when Digital One took over ASD's contract, it raised its rates, records show. They then equaled, and in some cases exceeded, the rates that ASD had been billing and that ASD had proposed to bill for the next year.

In December 2000, Stephenson's company started doing something on its bills that may never have been done before by any of the firms that provide computer workers to the state.

Public Safety records show the company started billing the state time and a half for overtime by its employees. This meant that when a contract worker who normally cost $80 per hour put in for overtime, Digital One billed the state $120 an hour. This issue would divide DPS staff, records show, but the company was allowed to continue doing it.

ASD's Adams said he can't imagine that Stephenson's success - both in taking away his company's contract and being allowed to charge time and a half - isn't in some hidden but nonetheless significant way due to politics.

"In a nonpolitical environment, you can't just start up a company, and within months, get multimillion-dollar contracts," he said.

What to tell employees?

After the close call in September 1999, and the hiring in early 2000 of Digital One, ASD had a big problem: It didn't know if its contract would be renewed the next year, and it had some 15 nervous employees wanting to know what was going on.

In September 2000, or shortly before the new fiscal and contract year was to begin, ASD lost all its DPS work to Digital One.

Howell - after learning that ASD was definitely out, and Digital One in - wrote Stephenson to recommend that he hire four current ASD employees who were particularly vital to the agency.

"Should you be able to retain their professional services you would succeed in maintaining a staff which has been responsible for the continuity of a computer network, which at times has been so fragile that when it fails it dramatically affects every county in the state of Alabama servicing the motoring public," he wrote.

ASD - in part, Adams said, to send a message to the state and to rival firms - told a number of its employees at Public Safety that it would seek to enforce the non-compete clauses in their contracts, to prevent them from transferring to Digital One.

Affidavits show ASD offered to give the employees raises and try to find other work. But the employees weren't sure ASD could deliver, and some wanted to remain at Public Safety anyway, affidavits show.

The employees, along with Stephenson and Digital One, hired Montgomery lawyer Tommy Gallion and sued ASD. They claimed that the company strung them along, telling them it believed it could retain its DPS contract, when it should have been up front and admitted it didn't have a chance. The ex-employees sought $15 million in damages, and the release from their ASD contracts.

"For almost a year, the rumors of ASD's conflicts with the state of Alabama have caused me worry for the stability and continuity of my employment," stated Shane Vickery in an affidavit included in the lawsuit file in Montgomery County Circuit Court.

"In December 1999, rumors that the contracts between ASD and the state would not be renewed at the end of September were being talked about by fellow ASD workers, as well as the state workers I worked with, on a daily basis," Vickery stated.

The lawsuit was recently settled. The former employees were allowed to remain with Digital One, but didn't get any money from ASD.

A final unknown

In Stephenson's deposition testimony in May in a case involving a company for which he once worked, he named former state Sen. Dewayne Freeman as one of the frequent contacts in state government who helped him win contracts for his technology-related clients.

For years, Freeman was a member of the Alabama Supercomputer Authority. Starting in the early 1990s, Stephenson, working as a sales representative for three companies, made a series of multimillion-dollar sales, including selling the state its first supercomputer, he testified in the deposition.

Freeman lost the 1998 lieutenant governor's race to Steve Windom, but was appointed by Siegelman, his longtime political ally, to head the Alabama Department of Economic and Community Affairs. At the time that Stephenson was making his first inroads with his new business, Freeman held the position of ADECA chief.

In May 2000, though, Freeman was forced to resign after he was arrested and accused of kicking his 3-year-old daughter after a night of drinking. The misdemeanor charge was later dismissed but, politically, the damage was done.

Since then, Freeman has become a contract lobbyist. Last week, Pat Harris, a lawyer hired by Mabry to lower the cost of computer consultant contracts, said Freeman has on occasion contacted him on behalf of Digital One.

Alabama Ethics Commission records show that Freeman is a partner with former Grand Bay legislator Taylor Harper in a firm called Southeast Consultants. Though that disclosure doesn't list any of the firm's clients, Southeast Consultants is known to represent the Alabama State Docks. Siegelman recommended the firm's services to Docks management, according to a Docks official.

Freeman, reached Tuesday, said he has never lobbied for Digital One and, as such, was under no obligation to register as having done so.

Technically, only those who lobby the Legislature must register. Firms seeking state business that doesn't involve the Legislature frequently hire lobbyists, though they operate under different rules, which include greater confidentiality.

Depending on their contracts, consultants - or lobbyists acting in that capacity - can be paid based on the percentage of a contract won, or on a contingency-related fee, with pay dependent on making a sale. When working the Legislature, though, lobbyists may only bill set amounts that are not dependent on bills passing or failing.

"I know the company and I do some stuff for them, but it's not lobbying-related," Freeman said Tuesday. Because he served in state government during a portion of 2000 - in his case, more than five months - Freeman is required by law to file a statement of economic interest with the ethics commission that covers his income for that entire year.

The form for the year 2000 was due in June. Commission officials said earlier this week and again late Thursday that Freeman has yet to file. He is among a group of state officials who have received two followup letters from the commission, and are soon due to receive a third.

Freeman stated Tuesday that he had recently filed his form. "It was hand-delivered over there, so you need to check their filing system. It's not my problem, it's their's," he said.

Freeman said he never introduced Stephenson to anyone in the administration, and declined to comment further.

"I'm not going to discuss my business relations with him - that's none of your business," he said. Stephenson's firm continues to thrive. State billing records show that in June, Digital One began billing substantial numbers of hours as a subcontractor for Huntsville-based Quality Research.

In 1999, Quality Research, with no apparent competition, was awarded what may be the largest contract of its kind in state government. Records on the firm's contract with the Department of Transportation also show that its hourly rates are noticeably higher than those paid to other firms.

In June, records show, a major subcontractor on that account, Camber Corp., was replaced by Digital One. Another firm, Tech Providers, also received a small portion of the business, state records show.

Officials with Quality Research and the highway department declined to comment on the reason for Camber's removal.

In May, in written responses to questions the Register had for a story on Quality Research and Camber, Siegelman's press office stated, "The Department of Transportation is very satisfied with their (Camber's) technology work."

(Editor's note: The Siegelman administration has a stated policy of refusing to comment to Register Reporter Eddie Curran.)